Basically, in a full offshore outsourcing set up, the client assigns parts of their business operations to a service provider and allows the latter to handle the operations from end to end. As such, the execution of responsibility and the inherent risks involved are shouldered by the third-party provider. In order for this type of offshoring structure to successfully work, however, trust and proper relationship governance between the service provider and the client should be clearly established.
In the case of a captive set up, the client or parent company creates a dedicated resource base offshore (basically a wholly owned subsidiary) and retains full control of the business operations. One problem with this model is that the time frame to establish a fully-functional captive center may take longer and may entail large investments. Additionally, it is necessary for the client to be knowledgeable about the offshore operations of the chosen country and knows how to operate there.
We have come up with a diagram below outlining the pros and cons of the aforesaid offshoring structures and we also introduce an effective new business model called virtual captive, which offers some of the benefits of captive and full outsourcing and addresses the limitations of the two.